Kazakhstan drops $1.3 Billion Fraud Case against KPO

    By Isabel Gorst
    Kazakhstan held out an olive branch to the KPO consortium developing the Karachaganak field by dropping a $1.3bn fraud claim against the group and offering to pay for a stake in the oil and gas deposit.
    Kazakhstan's financial police earlier this year accused KPO, led by BG and Italy's Eni, of overstating its costs at Karachaganak after KPMG conducted an audit of the group's accounts on behalf of the government.
    The fraud case is one of a number of charges levied at KPO this year by the Kazakh government which is seeking to obtain a stake in Karachaganak.
    "The criminal case opened on charges of fraud has been cancelled by prosecutors," Murat Zumanbai, a spokesman for the Kazakh financial police told Reuters yesterday. No reason was given for the closure of the case.
    Mr Zumanbai said a separate case accusing KPO of illegally earning $700m in 2008 by exporting more oil than it was allowed, was still being investigated.
    KPO could not be reached for comment.
    BG and Eni, along with Chevron and LUKoil, their partners at Karachaganak, have also faced accusations of environmental abuse, tax evasion and breaching immigration rules when obtaining visas for expatriate workers.
    Analysts have suggested that the charges mask an attempt by Kazakhstan, which is struggling to recover from an economic recession, to obtain a share in Karachaganak without paying.
    However, Lyazzat Kinov, Kazakhstan's energy minister, said this week that Kazakhstan was ready to pay for a share in Karachaganak and would not put pressure on KPO investors to dilute their stakes.
    Industry sources said "constructive talks" had begun between individual KPO companies and the Kazakhs, but were still at an early stage.
    Julia Nanay, a senior director at PFC Energy, said Kazakhstan's decision to drop the fraud case against KPO was "positive", but added the issue of state entry into the Karachaganak project was "still unresolved".
    It is not clear whether all partners in KPO are willing to dilute their stakes to make room for a state holding. Karachaganak was one of three oilfields Kazakhstan handed to foreign oil majors for development in the 1990s when crude prices were low and the country was battling an economic slump. But as oil prices have risen Kazakhstan tightened investment terms and began carving out a role for the state oil company.
    BG and Eni each own a 32.5 per cent interest in KPO. Chevron has 20 per cent and LUKoil 15 per cent, according the Financial Times.